Watt?

Tesla Motors’ deal to buy SolarCity, officially unveiled on Monday, is still perplexing. But at least boss Elon Musk’s electric-car pioneer is making the best of the terms and process. At $2.6 billion, the price for the solar-panel installer he chairs is lower than expected, and the two boards have done the right things. But it still risks distracting $35 billion Tesla at a critical time.

There is some industrial logic. The deal will bolt the country’s largest solar-panel installer onto Tesla’s battery business for cars, homes, businesses and utilities. This overlapping area is where most of the $150 million in expected annual cost savings will come from, covering sales, marketing, installation and servicing.

There’s logic in the deal math, too. Assuming they materialize – which may be hard to judge amidst the changes inherent in such fast-growing businesses – the anticipated synergies, on a multiple of 10, are theoretically worth $1.5 billion given both companies lose money and so essentially don’t pay tax. That equates to two-thirds of the acquisition price and several times the roughly $340 million premium.

Yet the carmaker’s foremost goal is to produce 500,000 vehicles annually by 2018 – almost 10 times production in 2015. That’s a lofty target, especially for a company with a habit of missing them. Owning SolarCity might mean having more people available to install home chargers, but the solar firm has challenges of its own which could eat into management time and dilute Tesla’s focus.

That in turn is why the family and ownership connections between the two companies raise potential concerns about the motivations for the deal. Chief among the potential conflicts of interest is that Musk chairs and owns about a fifth of both firms, while his cousin, Lyndon Rive, is chief executive of the solar company.

Independent board members at both companies OK’d the transaction, majority approval from unrelated shareholders at both firms will be required, and Musk has committed to vote his SolarCity shares in favor of a better offer if, after a 45-day period, the company secures one. That’s an exemplary approach. Even so, there’s still the nagging question of why Tesla would bother buying and integrating a solar-panel player at this moment, if at all.

Source: REUTERS/Sam Mircovich

A Tesla Supercharger station is shown in Cabazon, California, U.S. May 18, 2016.

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Tesla on Aug. 1 said that it has agreed to buy SolarCity for $2.6 billion in stock, based on the five-day average price for Tesla shares in the five days to July 29. Tesla is offering SolarCity shareholders 0.11 of a share in Tesla for each share they own of SolarCity. That's lower than the 0.122 to 0.131 ratio Tesla indicated as a base case when it first proposed the deal on June 21.

Tesla and SolarCity expect to cut $150 million of costs in the first year of the merger.

Entrepreneur Elon Musk is chairman and chief executive of Tesla and chairs SolarCity, which is run by his cousin Lyndon Rive. Musk owns about a fifth of both companies' stock.

The deal includes a so-called go-shop provision, allowing SolarCity 45 days to find a better offer. The transaction, approved by the independent members of both companies' boards, requires approval by their respective disinterested shareholders.